Good morning. My name is Julie and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Babcock & Wilcox Second Quarter Earnings Conference. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. Mr. Jude Broussard, you may begin.

Thank you, Julie, and good morning everyone. Welcome to the Babcock & Wilcox Enterprises' second quarter 2016 earnings conference call. I'm Jude Broussard, Vice President, Investor Relations at B&W. Joining me this morning are Jim Ferland, B&W's Chairman and Chief Executive Officer; and Jenny Apker, Senior Vice President and Chief Financial Officer, to talk about our second quarter earnings. Many of you have already seen a copy of our press release issued late yesterday. For those of you who have not, it is available on our Web site at babcock.com. During this call, certain statements we make will be forward-looking. I want to call your attention to our Safe Harbor provision for forward-looking statements that can be found at the end of our press release. The Safe Harbor provision identifies risk factors that may cause actual results to differ materially from the content of our forward-looking statements. Our most recent Annual Report on Form 10-K and our Form 10-Q for the second quarter on file with the SEC provides further detail about the risk factors related to our business. Additionally, I want to remind you that except as required by law, B&W undertakes no obligation to update any forward-looking statement to reflect events or circumstances that may arise after the date of this call. Also on today's call, the company may provide non-GAAP information regarding certain of its historical results as well as the 2016 and 2017 outlook to supplement the results provided in accordance with GAAP. This information should not be considered superior to or substitute for the comparable GAAP measures. B&W believes the non-GAAP measures provide meaningful insight into the company's operational performance and provides these measures to investors to help facilitate comparisons of operating results with prior periods and to assist them in understanding B&W's ongoing operations. A reconciliation of these non-GAAP measures can be found in our second quarter earnings release issued late yesterday and in our company overview presentation posted on the Investor Relations section of our Web site at babcock.com. I would ask that you limit yourself to one question and perhaps one follow-up. You are, of course, welcome to get back into the queue. With that, I would now turn the call over to Jim.

Thank you, Jude. Good morning everyone. You might have noticed a difference in voice on the phone this morning, so Jude, welcome, and to Leslie, who is with us as well this morning, we wish him the best of luck as you transition into leadership of one of our larger power segment business units moving forward. On today's call, we will discuss second quarter earnings and then provide an update on our strategic priorities. Starting with the second quarter, our results were largely impacted by three items; the first is a previously disclosed project charge on a European Renewable Energy Contract, which impacted revenue by $26 million and gross profit by $32 million in the quarter. We also booked $32 million in charges, primarily associated with the proactive restructuring of our traditional coal business, in light of a larger than expected shift in the U.S. electricity market. Lastly, the facility consolidation efforts associated with the coal market shift, required a midyear revaluation of our pension liability, resulting in a $30 million non-cash mark-to-market pension adjustment. For comparison purposes, absent these items we would have a relatively flat quarter year-over-year in a market where customers in our traditional utility and industrial environmental businesses are delaying spending due to market conditions. Consolidated revenues for the quarter were $383 million compared to $437 million in the prior year second quarter, and adjusted earnings per share were negative $0.20 compared to positive $0.27 in the second quarter of 2015. Adjusted operating income for the period was negative $9.1 million compared to $21.4 million in the corresponding period last year. Mostly, due to the effects of the renewable energy contract charge. Our backlog as of June 30, 2016 was $2.15 billion, which is 12% lower than the same date last year. Proposal activity has been…

Thanks Jim. Turning to the financial results; the Global Power segment revenues were $127.2 million in the second quarter, which is a $30.2 million decrease compared to the $157.4 million posted in the same period of 2015. Global Power's second quarter gross profit was a loss of $9.1 million compared to income of $26.7 million in the second quarter of 2015. Lower revenue and gross profit were primarily a result of the previously discussed change in estimate on a European Renewable Energy Contract, which adversely impacted revenue in the quarter by $26.4 million and gross profit by $31.7 million. At June 30, 2016, backlog in this segment was $1.1 billion, which is 7.7% lower than backlog a year ago, reflecting the lumpy nature of bookings in this business. Global Services' revenues were $218 million in the second quarter of 2016, compared to revenues of $236.7 million in the corresponding period of 2015. This 7.9% decrease in revenues was primarily due to the delay of work in the Canadian oilsands and lower part sales, due to mild weather this past winter. Gross profit in the current quarter was $53.6 million versus $46.3 million in the three months ended June 30, 2015, an increase of $7.3 million or 15.8%, despite lower revenues, due to the strong net project performance and project close-outs, as well as to margin improvement efforts in the business. The backlog in Global Services as of June 30, 2016, was $1.0 billion compared to $1.16 billion as of the same date in 2015, reflecting the continuing pressure on the U.S. coal aftermarket business. Revenues in the Industrial Environmental segment for the second quarter of 2016 were $38.0 million compared to $43.4 million in the second quarter of 2015, a decrease of $5.4 million, primarily due to continued weakness across…

Thanks Jenny. The project challenge in the quarter is clearly disappointing. That said, we have a much improved outlook for 2017, and remain confident in our three part strategy to deliver growth and improved returns for shareholders. The first element of our strategy is to optimize our legacy power business. As we explained on our June call, we have taken proactive measures to ensure we stay ahead of the curve in this consolidating market, in order to maintain profit margins and maximize cash generation, to fund our broader growth and diversification. This quarter's results show that our margin improvement efforts, combined with the focus on execution are delivering results, and we believe the restructuring efforts we announced will support profitability going forward. Our second strategic priority to grow the business internationally is continuing to gain momentum. Although Q2 was not strong in terms of signed contracts, we have a number of large contract award selections that don't yet meet our criteria to be included in our backlog, but for which we have been selected by the customer. We look forward to publicly announcing these contracts over the next few quarters. The bid pipeline remains strong, and we continue to see positive developments in our efforts to expand renewable energy projects outside Northern Europe. As we continue to focus on new markets, we see a surprising number of renewable waste-to-energy opportunities available to us in North America. In addition to the opportunities in the Middle East, Eastern Europe, and Asia. And finally, our plans to diversify through acquisition took a major step forward with the acquisition of SPIG. On July 1st, we completed the acquisition of SPIG, a global provider of custom engineered cooling systems and services. SPIG diversifies our geographic footprint across the enterprise. Provides a natural gas play on…

[Operator Instructions]. Our first question comes from the line of Tate Sullivan from Sidoti. Tate, your line is now open.

Thank you and good morning gentlemen. Can we talk about repurchases really quickly for -- and in the press release you note that you have $90 million of remaining capacity this quarter, does that cap how much you can buy back in the current quarter, or can you use some of the new authorization of $100 million?

We don't specifically have a cap. We could move into the new authorization, Tate. Our plans right now are to focus on finishing the 18.8 million that we have outstanding at the end of the quarter, and then as we move beyond Q3, we will take a look at acquisition opportunities, and we will balance that against share repurchase, and we will move forward from there.

Okay. Thank you. And then, I think you talked about your targeted business mix before, I mean, can you give an update with the SPIG acquisition and with the trends on the coal fired market, coal fired power plant market, what your targeted earnings mix is, I mean, in a certain timeframe?

Certainly, we have emphasized in the past and we will continue to emphasize going forward, our desire to further diversify the business and we think in the long run, that will maximize shareholder value for our customers. With the SPIG acquisition, that takes us certainly below 50% exposure to coal, probably in the mid 40s, and we would expect that number to continue to drop as we move into 2017, even before we complete another acquisition.

Okay, thank you.

Our next question comes from the line of Tahira Afzal from KeyBanc. Tahira, your line is open.

Hi. Thanks a lot. Jim, first question is, when you talk about next year and EPS being at or above, when you talked about it the last time, it, in my sense was it -- include the potential buybacks you just announced and enhanced or the acquisitions you could be making incrementally. So, should I be thinking of that as an incremental sort of outlook, so the EPS, the original EPS you had for 2016, if you are assuming that's a starting point for 2017, does that include your recent cash allocation announcements?

Good morning Tahira. I do think that you are thinking about this the right way, when we say we would expect 2017 earnings to be at or slightly above the 2016 targets. You are correct in assuming, that does not include any assumptions about additional share buyback or potential acquisitions that would be announced and potentially close in 2017, those would be on top of our numbers.

Okay, great Jim. And second question I wanted to ask you, when I look at my financial model and how I plan it out, it's so very sensitive to what we consider as a starting point for Global Services margin. We saw global services margin being very strong this quarter, and congratulations to your team on that. What should we consider to be the bookend of, when you are saying you can maintain Global Services margins into next year? Is it the 24%, 25%, or are we looking at the 20%?

Tahira, it's Jenny. As you are looking for Global Services margin, I think you would look at the average for the past several quarters, which would be in the low 20s.

Great. Thank you very much.

Your next question comes from the line of Bob Labick from CJS Securities. Bob, your line is now open.

Hi, good morning. This is actually Lee Jagoda for Bob.

Good morning

Good morning.

So first question, you talked about a bunch of awards that are awarded but awaiting final signatures; is there any way for you to quantify that in aggregate and more specifically, if all these projects got signed, would that bridge your gap in the 12% backlog decline we saw during the quarter?

Yeah, so second question first; yes, if all the projects for which we have actually been selected reached maturity, and we concluded the contract and the projects were legitimately going to go forward, it would at least cover, if not more than cover, the gap that appears in Q2. Now there are typically two things that slow us down on that front, and we are pretty conservative in how we take projects to backlog. The good news is, we have been selected on a number of projects, which is great. That said, we typically, on those larger projects, have to work through final terms and conditions. And then, we also want to make sure that the project is going to move forward. For example, if it's one of the larger projects, even if we have a signed contract, where it hasn't -- to move into backlog, if the project itself doesn't have its financing locked up, for example. So we are pretty conservative, but we do have enough, an abnormally high number of relatively large projects, for which we have been selected, we won the bid process, but aren't quite ready to go to backlog, so we thought it was worth mentioning.

Okay. And then just as a follow-up, in Global Services, you mentioned some positive project close-outs positively impacting your gross margin there. The gross margin uplift was 500 basis points year-over-year, almost about the same sequentially, how much of that uplift was the positive project close-out?

We have just indicated that the Global Services margin for the year and on average ought to be in the low 20s.

So some of those project close-outs caused that number to be slightly higher in Q2, and we are glad for that, and our focus is to make sure that we continue with that in the future. We had particularly good performance out of our construction group this quarter, and that's a trend we'd like to see continue.

Okay. Thank you very much.

Your next question comes from the line of Jamie Cook from Credit Suisse. Jamie, your line is now open.

Hi, good morning. Can you hear me?

Good morning Jamie.

Morning.

Good morning. A couple of questions; one, Jim, you talked a lot about the potential large awards that you are expecting in the back half of the year. Can you just size that for us and remind us how important that is to achieve your 2017 targets? So I guess that's my first question. And what are your assumptions on the accretion associated with the acquisitions -- that's associated with SPIG, that's implied in the 2017 estimates?

So I will take the backlog question, and Jenny I will kick the SPIG question to you in a second. So Jamie, on the backlog question, I think it's fair to say that given the number of the projects and assuming most of them eventually reach backlog, either in the back half of 2016 or early 2017, it certainly more than makes up the gap in Q2, so several hundred million dollars worth of work. Certainly, some of those, we would like to see booked and they will have -- and they are built into the baseline for 2017. If all of those came to fruition, it would probably be above our expectations for 2017 and it would help us.

And with respect to SPIG, SPIG is about a $200 million annual revenue company. We are expected to get about half of that, half year's worth of revenue contribution in 2016, and you would have the benefit of a full year revenue contribution in 2017.

The challenge on earnings for SPIG, and we are still finalizing the amortization numbers is, we would expect relatively heavy amortization for at least the first 12 months, which eats up a lot of earnings in the back half. The bottom line earnings to the back half of 2016, and probably the first half of 2017, and then you would see better bottom line earnings performance in the back half of 2017. Once we finalize those numbers, we will entertainment them out to folks, so you can put those into your models.

Okay, great. Thanks. I will get back in queue.

Our next question comes from the line of Steven Fisher from UBS. Steven, your line is now open.

Thanks. Good morning.

Good morning.

Jim, what are some of the key reasons that these awarded projects are getting held up from the contracts being released? Is it more permitting, is it financing, is it customer confidence in the economics? What's the risk that these things just kind of keep pushing out indefinitely?

So nothing abnormal here in regard to the timing of closing. Other than, we have an abnormally large number of contracts that are in this position today. So there are a couple of things that are normal slowdowns between award selection and us, announcing publicly a contract. It takes some time, particularly on the larger projects to finalize terms and conditions. In particular, if you have projects with multiple partners involved. And second, it always takes some time for the developers to finalize project financing, and/or permitting. And we typically wait until both of those are in place to announce the contracts. So nothing abnormal here, in terms of that process, other than the number of opportunities we see.

Okay. And then, your earnings guidance for the year is now more back-end weighted. What gives you the confidence in delivering that ramp-up, and is it mostly the fourth quarter? And I guess related to this, how has the business trended that day, versus when you did the pre-announcement back at the end of June? Anything better or worse, and we have seen [indiscernible] coal prices I am not sure if you are kind of still thinking about it, at the same point of the $0.63 to $0.83 range, or if anything has changed there?

I think your view of the balance of 2016 is very consistent today versus what we saw at the end of June, when we modified guidance with the preannouncement. Just as in 2015, we expect a pretty strong fourth quarter, and that's not unusual, its largely a result of project timing, and when we are allowed to recognize revenues and some of the income on some of the larger projects that are underway.

Are there more close-outs that -- I know you gave the expectation on the Global Services margins. I mean, are there specifically more closeout that had to happen, or is this sort of -- this more flow of recognized revenues and profits?

Q2 was unusual in the number of project close-outs, as we look at quarters three and four, I think that's a normal flow, and Q4 is certainly not exceptionally dependent on project closeouts.

Okay. And you have got -- how much of what you need to do you have in backlog today, versus what else to go your way, I guess from a revenue perspective for that second half waiting?

We have almost everything we need to complete 2016 in the backlog.

Okay. Thank you.

Your next question comes from the line of Chase Jacobson from William Blair. Chase, your line is now open.

Hi guys. Good morning.

Good morning Chase.

So Jim, I think it’s a month after this big acquisition and I think you said that you are seeing more revenue synergy opportunities? Can you expand on that, and is that related to any of these projects already, or is that longer term, as we look out into mid 2017 and 2018, so what kind of markets do you realize revenue synergies in?

So most of the -- I think your read on our optimism on SPIG is correct. Most of those -- all of those opportunities are outside the large projects I talked about previously. We are gaining a lot of traction, as we bring the business development professionals together across the business units from SPIG, and we integrate them with our business development efforts and power, and actually in MEGTEC. It's surprising the number of opportunities we see flowing both ways. Mostly, increased opportunities for SPIG, given the strong B&W relationships in the power markets, and with the larger E&C providers, that are quite often buyers of SPIG equipment. So we see good opportunities on that front. And we actually see a few opportunities flowing the other way, where SPIG has contacts, customers and some geographic relationships, that we think will open the door for examples on MEGTEC projects outside the U.S. So again, we are one month into this, but we feel pretty good about our ability to enhance SPIG's revenue going forward.

Okay. And then speaking on this acquisition topic, I mean, just M&A more generally; so you did SPIG, which is mostly large equipment focused. As you look at this new pipeline of opportunities, is the focus changing to more aftermarket stable type businesses, or are you still looking at adding to the equipment portfolio? Any color you could give would be great. Thank you.

Sure. So the primary focus for us, is looking for ways to add on to the businesses that we have today. So our primary focus would be a bolt-on acquisition for MEGTEC, perhaps some addition to the SPIG as we go forward. Perhaps businesses that would allow us entrée or additional entrée into the gas market, which is one of the things that SPIG accomplished for us. It could be equipment based, it could be aftermarket based, both of the businesses we purchased in the last couple of years, MEGTEC and SPIG, have a component of both, they have a baseline equipment business, and then an aftermarket business. One of the attractive features of SPIG is, they have a rapidly growing aftermarket business today, that we think we can help them enhance. The key to all of this is, we continue to look for technology based companies with engineered solutions and an aftermarket business, that we think will ultimately allow us to capture increased margins going forward. All focused on the specification.

Okay. Thank. But just to be clear, so as we stand here today, this is about finding the deals or is this about closing the deals at this point?

So we have a good pipeline of opportunities. Our team, albeit focused on closing SPIG, remained in the market, looking for opportunities. So it’s a mixture of both. We think there are a number of opportunities out there. That said, it takes some time to dig into them and the more you dig in, the smaller the number of good opportunities gets. So we are in much the same place as we were a few months ago, but we feel good about the pipeline and the number of opportunities we see in the next 12 to 18 months.

Okay. Thank you.

Your next question comes from the line of Tate Sullivan from Sidoti. Tate, your line is now open.

Hi, thanks for taking my follow-up. I just saw your updated presentation, slide 18 on your business segment, realignment, and I think it shows how you are thinking about your business going forward. Two questions, why did you decide to separate out the renewable business, and then you have a column in there saying percent of revenue from coal, that is much less in your power business than I thought it would be? Can you answer those two questions please?

Sure. So the logic in creating a pure standalone renewable business is, we see a lot of opportunity in that business. First things first, as we proved in the second quarter, we have to have focus on execution. So one of the benefits of isolating the renewable business alone is, my management team is dedicated and focused to execution, only of the renewable projects going forward. So I think that will provide some increased focus and benefit. And two, the longer term upside in that business is all about our ability to expand those renewable energy projects outside of Northern Europe. We see significant opportunity in North America. We see significant opportunity in Southeast Asia, in the Middle East. In order to effectively capture those projects and then efficiently execute them, we need to grow our business and expand our ability to perform outside just Northern Europe, and that requires a focused management team, and that's really the benefit of the change. You are correct, we did include a column on that slide, that shows coal exposure going forward and in essence what this change does, it consolidates our coal exposure inside just the Power segment, which I think is what most people would expect any way, and it takes the other two segments to close to zero.

It indicates 70% to 75% of Power's is coal, what is the remainder?

So it’s a variety of projects. There are B&W Boilers in industrial complexes all around the world. For example, pulp and paper. We also have a moderate sized industrial gas boiler business today, that resides inside the power segment.

And we are doing environmental equipment for industries outside of just Power, as well, outside of just coal.

Okay, understood. Okay, thank you.

The next question comes from the line of Tahira Afzal from KeyBanc. Tahira, your line is open.

Hi Jim. Just a quick follow-up, Black and Veatch released their pretty well recognized survey, study on the electric sector yesterday; and surprisingly, there was a bit of a surge in terms of CapEx plans that you told that you have for retrofit and emissions again. So I just wanted to follow-up, that got me by surprise, are you seeing any return of momentum in that segment?

You are a step ahead. I have not read the new Black and Veatch report. But we have really, Tahira, have not seen a step-up in environmental side investment, in the coal side of the business for utilities. That said, if Black and Veatch has seen a pickup, we will take a look one more time in that area. That would be a nice upside opportunity, if there were some money flowing in that direction.

Got it okay. Thanks Jim. I will follow-up with you and pass on the link.

Look forward to it.

There are no further questions. I turn the call back over to Mr. Broussard.

Thank you for joining us this morning. That concludes our conference call. A replay of this call will be available for a limited time on our Web site later today.